Breaking down the balance sheet
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Breaking down the balance sheet (NWC edition)
“Net Working capital is a term more frequently heard than understood."
- Every deal team on planet earth
If you have been part of any M&A deal you understand the tedious task of calculating and negotiating the dollar value of net working capital (NWC). It’s important to understand its significance and impact as failing to do so can leave you closing the deal with less 💰💰 to run the business.
At a high level; NWC (current assets - current liabilities) may seem very straightforward, but what makes calculating this figure so complicated for selling a business are the various line items that impact it and both parties’ interpretation of these items.
In a recent blog post, Matthew Hinson did a great job of breaking down its complexity 👇
Source: Calculating Working Capital
The intricacy of NWC makes it the most tedious and complicated part of closing any deal, let alone a huge pain for both parties.
TLDR; Whether you are an investor, operator, or founder, understanding the dynamics of NWC may not be critical now but most likely will be some time down the road.
Make sure to check out the following reads for a NWC deep dive:
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